Comparative analysis on the profitability determinants of local and foreign Islamic banks in Malaysia

The Malaysian Islamic banking industry has recorded the declining on their profitability performance for both Local and Foreign Islamic banks since past few years. These decreasing might emerge from various external and internal environment
forces of lslamic banks. The main objective of this study is to identify the determinants that could influence the Local Islamic banks and Foreign Islamic bank's profitability in Malaysia. The dependent variable used in this study is Return on Asset (ROA)
meanwhile the independent variables consists of external and internal determinants which are Gross Domestic Products (GDP) and Inflation (INF) for external determinants and Capital Adequacy Ratio (CAR), Asset Quality Ratio (ASQ), Liquidity Ratio (LQR) as well as Bank Size (SIZE) for internal determinants. The study employed balance panel data on 16 Islamic banks in Malaysia which consists of 10 Local Islamic banks (70 observations) and 6 Foreign Islamic banks (42
observations) over the period of2010 until 2016. The study found that external and internal determinants, namely GDP, INF, and CAR have a significant impact on the of Local Islamic bank's profitability in Malaysia. Meanwhile, for the Foreign Islamic banks in Malaysia, the external and internal determinants namely INF, CAR, ASQ, and SIZE are significant toward their profitability. The findings from this study could
provide a comprehensive analysis on the profitability determinants that could influence the profitability of the Local Islamic banks and Foreign Islamic banks in Malaysia. The findings also could contribute the valuable information as an essential guide to the Islamic bank's management team to evaluate the bank profitability in Malaysia.